What Is a Foreign Earned Income Exclusion?

Foreign enterprise income tax is a tax levied on foreign enterprises' income derived from production and operation in China and other income. According to the "People's Republic of China Foreign Enterprise Income Tax Law" adopted at the Fourth Session of the Fifth National People's Congress on December 13, 1981 and implemented on January 1, 1982, the taxpayers of foreign corporate income tax are established in China Institutions, foreign companies, enterprises, and other economic organizations engaged in independent operations or cooperative production and cooperation with Chinese enterprises; and foreign companies, enterprises, and other economic organizations that have not established institutions in China but have obtained income from China. ^[1]

Foreign corporate income tax

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Foreign enterprise income tax is a tax levied on foreign enterprises' income derived from production and operation in China and other income. According to the "People's Republic of China Foreign Enterprise Income Tax Law" adopted at the Fourth Session of the Fifth National People's Congress on December 13, 1981 and implemented on January 1, 1982, the taxpayers of foreign corporate income tax are established in China Institutions, foreign companies, enterprises, and other economic organizations engaged in independent operations or cooperative production and cooperation with Chinese enterprises; and foreign companies, enterprises, and other economic organizations that have not established institutions in China but have obtained income from China. ^[1]

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Establish institutions in China, wholly-owned foreign companies, enterprises and other economic organizations;

Cooperate with Chinese enterprises to produce,

Income from production and business operations in China and other income. Including income from production, operation, and other non-operating gains in industry, mining, transportation, agriculture, forestry, animal husbandry, fishing, husbandry, commerce, services, and other industries.

Get investment income from China. Including dividends or shared profits from enterprises in China; interest on deposits, loans, advances, deferred payments, etc. obtained from China; rents obtained by leasing property to renters in China; and provision in China Revenues from the use of various patents, know-how, copyrights, trademarks, etc.

The above two aspects are determined based on the taxation principle of the source of income. According to the tax law: "The total income of a foreign enterprise for each tax year, after deducting costs, expenses, and losses, is the taxable income." For investment income obtained without establishing an institution, unless otherwise specified, the taxable amount is calculated based on the full amount of income, and the payment unit withholds the amount of each payment. Foreign corporate income taxes are subject to excess progressive tax rates. Divided into 5 levels according to the amount of income, the lowest level is the annual income of not more than 250,000 yuan, the tax rate is 20%, the highest level is the annual income of more than 1 million yuan, the tax rate is 40%, in addition, A 10% local income tax is also levied on the taxable income. The total of the two items shall not exceed 50%. Foreign corporate income tax is levied on an annual basis and is paid in advance on a quarterly basis. ^[3]

The operating income tax rate obtained by foreign-invested enterprises and institutions and venues established in China by foreign enterprises is 30%, the local income tax rate is 3%, and the overall tax burden is 33%.

The tax rate is 20% for foreign enterprises that have not established an institution or place in China, but have income derived from China, or although they have established an institution or place, but their income is not actually related to their institution or place. ^[4]

The total income of a foreign-invested enterprise and a foreign-invested enterprise that engages in production and business operations and establishments in China for each tax year, after deducting costs, expenses, and losses, is the taxable income.

Income tax payable = taxable income × tax rate ^[5]

To engage

Corporate income tax and local income tax are paid on an annual basis and paid in advance on a quarterly basis. Prepay within 15 days after the end of the quarter; settle the settlement within 5 months after the end of the year, with more refunds and less make up.

Foreign-invested enterprises and foreign-funded enterprises engaged in production and business establishments and establishments engaged in production and business operations shall submit a pre-payment income tax return to the local tax authority within the period of each pre-payment of income tax; Submit annual income tax returns and accounting statements.

The income tax paid is calculated in RMB. If the income is a foreign currency, the tax shall be converted into RMB according to the foreign exchange rate published by the State Administration of Foreign Exchange. ^[7]